India’s falling FX buffer prompts calls for softer rupee defence

Pratigya Vajpayee / Bloomberg

Mar 18

The Reserve Bank of India’s recent defence of the rupee is weighing on the nation’s foreign exchange reserves, prompting calls from some analysts to scale back future intervention.(March 18): The ...

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The rupee weakness comes at a time when India is facing a rising import bill due to higher energy prices, with implications for both its economy and markets.\nThe more the RBI intervenes, the less firepower it will be left with, which can lead to more problems if the ongoing crisis in the Middle East continues, said Indranil Pan, chief economist at Yes Bank Ltd. “On the external sector, the shock absorber has to be the exchange rate only. There is definitely a need for the RBI to be slightly more flexible in terms of allowing rupee depreciation.”\nIn recent weeks, the RBI has stepped up intervention in the currency market to shield the rupee, which is hovering near its record low of 92.4788 per dollar hit Friday. \n\nForex assets fell to US$563 billion in the week of March 6 from a peak of US$591 billion in June. Overall reserves, which have been supported by higher gold prices, declined by the most since November 2024.\nIndia needs a forex reserve buffer of at least US$1 trillion to ensure robust intervention capacity, according to former RBI deputy governor Michael Patra.\nThe RBI’s ammunition to support the rupee is lower after accounting for its outstanding dollar sales, with its forward book at US$67.8 billion at the end of January.\n“Defending a particular level of the rupee could become very problematic very quickly if the fundamentals have shifted for good,” said Dhiraj Nim, FX strategist at Australia and New Zealand Banking Group. “The RBI can let the rupee adjust a bit more before the level of reserves becomes a concern.”\nUploaded by Arion Yeow","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}